Oil Price Outlook As Commodity Cools Off Dollar Pressure

Summary:
• Oil price has absorbed most of the pressure exerted by strong US dollar over the past week, but is major breakout likely?

Oil prices have turned green after making a losing start to the week on Monday, under pressure from a strong US dollar. The benchmark WTI was trading at +0.70% at 13:30 GMT, having opened at $72.76. Barring major developments in the market fundamentals, the commodity looks on course to better yesterday’s gain of +0.69%.

The events around the Middle East and the Red Sea have so far failed to catalyse a major price action by oil. The supply line interruptions in the Red Sea have not impacted oil prices as much as they have impacted delivery. This points to a potential supply glut capable of absorbing the shocks emanating from geopolitical instability. In the medium-term, however, this could change if major oil producer, Iran, gets into more direct confrontation with the United States.

Oil also faces uncertainty regarding its demand side, as it becomes increasingly clear that the world’s largest importer, China, faces an economic slowdown. The country is expected to grow its economy by 4.6% this year, a factor that points to slowing industrial activity. This will impact oil price negatively in the medium-term.

This week’s oil price movement will also be impacted by tomorrow’s release of US crude inventories by the Energy Information Administration. The current price was, in part, affected by a higher-than-expected inventory volume reported during the last release.

A rise in the stockpile by 1.234 million barrels against a projected decline of -0.217 have helped retain the commodity above $70 mark. Tomorrow’s figure is expected to show +2.133 million barrels, which could drive prices lower. An expected slowdown in demand from Eurozone’s slowing economies will also make a strong case for lower demand-side price increases.

Technical analysis

The RSI makes a strong case for holding long positions. The price is likely to hold above $72.05 driven by this momentum. At that point, the bulls will likely target $73.70, and a sustained momentum will push the target further up to $74.40. In the alternative, a weak momentum could push the price below the $72.05 pivot level, at which point.